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U.S. District Court for Eastern District of Pennsylvania Allows Class Action Securities Fraud Suit to Proceed against Pharmaceutical Manufacturer

In re ViroPharma Inc. Sec. Litig., No. 12-2714, 2014 U.S. Dist. LEXIS 67414 (E.D. Pa. May 15, 2014), the U.S. District Court for the Eastern District of Pennsylvania denied a motion to dismiss securities fraud claims brought under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against a pharmaceutical manufacturer by a class of purchasers. The purchasers alleged that the manufacturer made misleading statements and omitted material information with respect to its pending drug petition, which, if denied, would result in the manufacturer losing exclusive market share for a drug that comprised a substantial portion of its revenues. The FDA eventually denied the petition, resulting in a 21% decline in the shares of the manufacturer's stock. Under these alleged facts, the court concluded that the class had made out a prima facie case of securities fraud under Sections 10(b) and 20(a).

In so concluding, the court found that the plaintiffs had satisfied the heightened pleading standard under Rule 9(b) and the PSLRA by specifically identifying the misleading statements and omissions, explaining why those statements and omissions were false or misleading, and stating when and by whom those statements and omissions were made. Although the defendants sought to invoke the PSLRA's safe-harbor provision for forward-looking statements, the court rejected the provision's application to the alleged misrepresentations and omissions. Specifically, the court concluded that the alleged misrepresentations and omissions could not be characterized as "forward looking" since the defendants allegedly were aware of the undisclosed information at the time when the omissions were made.

With respect to the materiality of the allegedly misrepresented and omitted information, the court found that the information that was the subject of the misrepresentations and omissions was material because it bore directly on the likelihood of the manufacturer having an exclusive market share for the drug. According to the court, the manufacturer was under no obligation to disclose all communications that it had with the FDA, but information bearing on exclusivity could not be misrepresented or omitted by the manufacturer since it would have been significant to investors.

The final issue addressed by the court was scienter, which the court also found to be pleaded adequately. In determining that the plaintiffs had adequately pleaded scienter, the court relied in part upon the "core business" doctrine-i.e., because sale of the drug comprised a substantial portion of the company's revenues, the company should have been aware of the issues affecting exclusivity. Additionally, the court relied upon irregular insider trading activity and the detailed statements of confidential witnesses to conclude that the plaintiffs had carried their burden of proving under Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007), that the inference of scienter was "at least as likely as any plausible opposing inference."

Because the court declined to dismiss the securities fraud claim under Section 10(b), it also declined to dismiss the derivative, "control person" claims under Section 20(a).

As a brief comment, the court did not consider loss causation as part of its decision. The court did note in passing, however, that "[t]he FDA's denial of a Citizen's Petition will invariably affect a stock price in a negative way, regardless of whether a company sees it coming or not." Nonetheless, the court determined that the plaintiffs had pleaded sufficient allegations so as to be permitted to conduct discovery on their theory of fraud against the manufacturer.

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Firm shareholder Henry Sneath's article "The New Federal Defend Trade Secrets Act of 2016" was published in the 2016 Fall/Winter edition of USLAW Magazine.

Firm shareholder Henry Sneath's ed a CLE on the New Federal Defend Trade Secrets Act of 2016 for the Western Pennsylvania chapter of the Association of Corporate Counsel

Firm shareholder Alan Miller was named as the 2017 Best Lawyer Environmental Litigator of the Year and also was named a 2016 Super Lawyer in Insurance Coverage.

Firm shareholder Henry Sneath was named a 2016 Super Lawyer in Intellectual Property Litigation; firm shareholder Anthony Picadio was named a 2016 Super Lawyer in Business Litigation; firm associate Brandon McCullough was named a 2016 Super Lawyer Rising Star in Insurance Coverage.

On May 25, 2016, Firm shareholder Jeff Ludwikowski presented "Voir Dire and Jury Selection" with Honorable Ronald Folina, at the Crowne Plaza Pittsburgh, as part of the National Business Institute's Continuing Education Programs.

Firm shareholder Henry Sneath and firm associate led and presented at a 2-hour CLE on "Defend Trade Secrets Act (DTSA): The New Federal Private Cause of Action for Trade Secret Misappropriation."

Firm shareholder Kelly Williams spoke at the USLAW Business to Business Litigation Exchange in San Francisco on Prosecuting and Defending Business Defamation and Commercial Disparagement Claims by or Against Competitors Including Social Media Issues.

Firm shareholder Jeff Ludwikowski spoke on "Wacky Pennsylvania Construction Laws" at the U.S. Law Network Spring Conference in Rancho Palos Verdes California, which took place on April 7-9, 2016.

Firm shareholder Jeff Ludwikowski was selected to serve a two year term as Education Coordinator for the Construction Law Section of the U.S. Law Network.

Firm shareholder Bridget Gillespie and firm associate Brandon McCullough served as Regional Editors and Co-Authors of the Pennsylvania Chapter of the DRI Duty to Defend Compendium which was published in February 2016.

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